What is retirement planning?

Whether you are making retirement plans in the UAE, the UK or elsewhere, the end goal remains the same. You need to be prepared for life after paid work ends. Retirement planning is the process that helps you prepare for that stage in your life.

At its core, retirement planning is about achieving financial freedom, in other words, being able to live the life you want when your regular income from work stops. This is usually done by putting processes in place and setting up sources of income that support you for life.

Think of a retirement plan as a roadmap leading you from where you are currently to where you want to be when you retire. Of course, everyone’s journey is slightly different, so there is no one-size-fits-all approach. Ultimately, reaching your retirement goals is the product of careful financial planning.

It’s never too late to start planning, but the sooner you start, the better retirement options will be available to you.

Why do I need to plan for retirement?

We can’t predict the future, but we can prepare for it. And now, planning for retirement and having an income for life is arguably more important than ever.

With the average life span increasing, we are spending more time in retirement. Data from the Office for National Statistics found that the average life expectancy at 65 is 18.5 years for men and 21 years for women.

So, with our post-working years increasing, there is now more of a strain on our retirement savings. Now, being financially secure when you retire is on your shoulders.

Gone are the days when the guaranteed income of a final salary pension was commonplace. The State Pension age is also increasing, and in most cases, the amount you receive won’t be enough.

The maximum new State Pension is currently £179.60 per week, and the basic State Pension is £137.60 – or £9,339 and £7,155 per year, respectively. According to research from Which?a comfortable retirement costs £19,000. The difference highlights why money in retirement from other sources is so important.

If you have plans for retirement in the UAE, the costs may be a little different. Retirement strategies in Dubai and the UAE may differ from the UK. Still, the retirement planning process and planning ahead are both crucial regardless of location.

As an expat, retirement planning is even more critical as your pension income could be lower. For example, if you have been working overseas, you may not be eligible for the State Pension. If you do qualify, you may receive a lower amount depending on your National Insurance contributions.

There is another pension pot to consider: the workplace pension. Otherwise known as a contribution pension, most companies offer these in the UK. However, those working abroad may not be enrolled on a company pension scheme.

Regardless of your current situation, the earlier you start planning, the better. Having a well-structured plan in place will also give you peace of mind, knowing that your future is secure.

How to start financial planning

Although everyone’s plan will look a little different, there are some helpful tips to get you started.

Define the cost

It’s a good idea to establish what you want from retirement. Do you still want to go away on holiday each year or pursue a hobby? At what age do you want to stop work?

If your goal is to retire in the UAE, you will need to consider expenses based on the location. For example, the costs of medical expenses, etc.

Remember, when looking at costs, you need to factor in inflation.

For reference, the average inflation rate in the UK between 1989 and 2021 was 2.50%. Calculating precisely to account for inflation is difficult, but taking an average could help you better understand how much retirement savings you will need.

These are things to consider as they will give you an idea of how much you will need to retire. This is a great starting point as it gives you a clearer picture.

Income vs capital

From investments to pension choices, you need to consider your future income.

A good way to organise is to sort your money into two categories – retirement income and capital.

Your income is what supports your needs. These are essentials, for example, food, bills, health insurance and so on. Your capital is what you use for your wants. These are your luxuries such as holidays, hobbies, a new car etc.

Planning vs age

It’s essential to create a plan for where you are in life currently. Although the earlier you start, the better, it’s never too late. However, starting your retirement plan in your 20s will look very different from starting in your 40s.

As you get older and closer to retirement, you have less time to accumulate the wealth you need. That doesn’t mean it’s impossible; the approach just needs to be different.

Debts

One of the biggest barriers to wealth is debt.

Ideally, you want to pay all your debts before you stop working so they don’t eat into your savings.

Will you still be making rent or mortgage payments when you retire? If not, that is likely one of your biggest expenses gone. These are some of the questions you need to ask yourself and account for when you draw up a budget.

When can I access my pension?

There is currently no set age for retirement. However, accessing your pension can influence the age you decide to retire and your financial planning strategy.

You can access most pension savings at the age of 55 and the UK State Pension from age 66 currently. Be aware there are plans to increase this.

You can access your pension fund in different ways.

For example, you may choose to receive a regular monthly amount. You also have the option of withdrawing a cash lump sum. Some risks come with this option, so it is advised that you seek proper financial advice beforehand.

For the most up to date information about the retirement age or to check your State Pension forecast, visit the UK government service website.

What to do next

Statistics from the Money and Pensions Service found that 35% of retirees left their retirement planning to the last two years of their career or didn’t prepare at all. Although it can be easy to put off when you are young, there really is no time like the present to start planning your retirement.

And as the cost of living increases, so does the need to have a plan in place to ensure your financial security.

Of course, with so many retirement planning tools and products, knowing what the best options are can be the first challenge. Whether it’s retirement planning in Dubai or elsewhere, our team of experts can help.

At Holborn Assets we specialise in the expat market, so we know the unique challenges you face. Our bespoke strategies are tailored to your needs and can help you overcome those challenges.

For more than 20 years, we have successfully helped our clients take control of their finances and reach their retirement goals. So with Holborn, you can be sure that your future is in safe hands.

To find out how we can help, contact us by filling out our quick form. We’ll be in touch to get you started on your journey towards a better financial future.